In the present times, the ambit of CSR activities has grown manifold and is helping strengthen the country socially and economically. Today, CSR is playing a crucial role in supporting COVID-19 relief initiatives through contributions at multiple levels.
Several amendments to Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014 have been notified with effect from 22 January 2021.
Some of the changes in CSR rules include:
- Negative list introduced in the CSR definition
- Board is obligated to ensure that disbursed funds are utilized as approved and monitor implementations (fund allocations and timelines) of ongoing projects
- CSR implementing non-governmental organizations (NGOs) are required to be registered for income tax and company law purposes
- Companies are required to mandatorily spend their CSR obligation
- Treatment of unspent CSR amount at financial year end is dependent upon whether the project is an ongoing project or not.
- There shall be penalty on company and officers in default for failure to transfer unspent amounts as prescribed
- Companies are required to carry out impact assessment mandatorily for CSR projects meeting specified thresholds
- Reporting format for disclosures is revamped
Organizations will have to focus on the following in the CSR program’s life cycle to enhance governance and mitigate risks.
- Governance structure and identification of implementing partners
- Governance structure
- Strategy and objective setting
- On-boarding implementing partners
- Background, reputational and ethical track record of key personnel
- Any allegations pertaining to illegal or unethical business practices
- Fund utilization review for CFO certification
- Assessing the existing control framework
- Funds are used for intended purposes as defined in the Memorandum of Understanding (MoU)
- Risk of leakages
- Impact assessment
- Alignment with global standards
- Focused Group Discussions (FGDs) to be held with the communities
- Benchmarking against leading industry practices
(Saguna Sodhi, EY India Partner - Forensic & Integrity Services has co-authored the article.)